March 2001

The Asian Crises and U.S. Hegemony

James Petras

A framework for understanding of the rise and demise of Asian capitalism requires a look at the larger historical context and the role of imperial politics. The "Asian Tigers" grew in the context of the cold and hot wars in Asia between 1945-1990. Washington sought to showcase the advantages of capitalism over communism and thus opened its markets to Asian imports. The Asian Tigers also benefited from the ten year U.S.-Indochina war via military contracts and trade concessions. With the end of communism, the Asian Tigers were seen in Washington as competitors, increasingly independent of U.S. tutelage, hence the need to re-subordinate them.

The Asian Tigers grew in a period of global expansion. Their strategy was based initially on state directed capitalism: savagely exploiting the labor force via state repression while the central bank and state development agencies channeled investment funds into private companies. The state protected its monopolies from external competition. In recent years, however, the neo-liberal virus infected Asian capitalists and politicians as they sought to expand investments in international financial markets and to capture overseas funds for large-scale and costly real estate, financial, and insurance mega-projects. The result was the deregulation of the economy and the growth of a massive speculative economy. This "new economy" first displaced the productive economy as the site for investment and later undermined it when the financial bubble burst.

In summary, the "Asian Miracle" emerged as a product of a particular conjuncture of capitalist/communist conflict. The "miracle" was a product of heavy state intervention in the economy, defining capital investments and priorities in the productive sphere over the paper economy.

With the rise of inter-capitalist competition and the penetration of neo-liberal ideology, the Asian ruling classes increasingly deregulated their economies to capture foreign financial flows and stimulated investment into the speculative high profit sectors (real estate, stocks, etc.). The "liberalization" process increased their economic vulnerability to outside speculators as the state lost control over the key economic levers.

The deregulation of the internal economy led to a massive shift in financial resources to the speculative economy. The transfer of industrial earnings to stock and real estate speculation led to the growth of "bad debts." The result was the predictable over-accumulation of speculative assets divorced from the performance of the real (productive) economy. This predictably led to the financial crash and the collapse of stock prices.

From the viewpoint of U.S. financial and investor interests, the collapse of the Asian competitors is not a bad outcome. Asian money is fleeing to the "safe haven" of the U.S. This is lowering the cost of borrowing money in the U.S. and keeping inflation in check. Secondly, the Asian countries depending on the IMF will have to follow its prescriptions of privatization, cuts in state budgets, and an end of basic subsidies--all of which will favor U.S. investors. Wall Street can buy Asian productive assets cheaply, and enter the Asian markets freely. More important the IMF entry means the return of U.S. hegemony and the decline of Asian capitalism as an independent and competitive economic pole. Thirdly, the financial crises and the stabilization policies will have a deflationary impact causing bankruptcies and lowering the competitive capacities of Asian producers in overseas markets. Of course, the collapse of Asian capitalism does have some danger for the U.S. The "domino theory" in which the collapse of South Korea provokes a crises in Japan which in turn negatively affects the U.S. is a possibility. But that possibility becomes a reality only if the Japanese capitalists withdraw their investments from U.S. Treasury notes and dump their products in the U.S. market. This is not likely. First because Japanese bondholders are not likely to sell strong dollar dominated notes to reinvest them in a weak yen. Secondly, the U.S. will likely tighten its import quotas to limit Japanese exports which threaten to increase Washington's growing trade deficit.

Despite the rhetoric of "globalization," the Asian collapse demonstrates the continued division and conflict between national capitalism and states and the continuing power exercised by imperial countries over the "newly industrialized countries." While it is too simplistic to argue that a group of Western financial speculators like George Soros engineered the crises, it is closer to the truth to say that the beneficial consequences for certain U.S. investors reveals the differential consequences of neo-liberal policies and de-regulation. Washington and Wall Street's promotion of "free market" policies and the penetration of this doctrine among Asian heads of state and bankers led to the fateful consequences: the collapse of Asian stock markets, massive devaluation, economic depression, widespread and large-scale bankruptcies, plunging living standards, and growing unemployment. As Asian declines, the U.S. and to a lesser degree the European Union gain competitive positions. As the financial arbiters of Asia's future, the U.S. and European bankers via the IMF return to dictate Asian economic policy just as in the "old days" of neo-colonial rule. The multi-polar world economy is reduced to two--with one unchallenged "economic superpower."

On the other hand, the decline of Asian capitalism is provoking a resurgence of mass protests: demonstrations against the IMF austerity measures are everyday affairs in Thailand. Nationalist voices resonate throughout the region and liberalization policies are the hated targets. As the governments proceed to implement IMF policies, the rising interest rates will lead to massive factory closures and large-scale unemployment. The states' financial bail-out of private investors means that tax payers (mostly salaried and wage workers) will be asked to pay the bill for the failure of capitalism. General strikes in South Korea and large-scale protests are likely in Japan. The restoration of U.S. hegemony could be the prelude to the Third U.S.-Asian Wars.

While Washington privately gloats over its successes and the Wall Street stock market rises, this could be a pyrrhic victory. The Asian experience demonstrates that short term successes can lead to long term disasters. While the crises begins in the stock markets, its outcome will be decided in the streets of Seoul, the jungles of the Philippines, and the factories of Tokyo.